NBN Co makes final move to kill off 12Mbps broadband plans

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NBN Co makes final move to kill off 12Mbps broadband plans

Dumps CVC discounts to pressure customers to upgrade or leave.

NBN Co is putting the squeeze on the quarter of its user base that have not yet upgraded to more expensive plans by making their existing services even more congested or costly.

The changes, which could come into effect as early as May, will make 12Mbps broadband services even more uneconomical - and are part of a year-long campaign to do exactly that.

The latest move will see NBN Co call time on a bandwidth discount that has allowed retail service providers (RSPs) to sell largely uncongested 12/1Mbps services on the NBN at a cheap price.

Most RSPs with 12Mbps offers in-market give users, on average, between 9Mbps and 11Mbps speeds in the evening peak.

But that has only been made possible with the discounting of NBN Co’s connectivity virtual circuit (CVC) bandwidth charge over the past couple of years.

CVC - a fee for offloading traffic from the NBN to the service provider’s network - was long considered an artificial constraint on NBN performance. Its high flat cost encouraged RSPs to buy a bare minimum, resulting in widespread slowdowns that only ended when CVC was steeply discounted.

NBN Co has since changed the way it discounts CVC. It now includes a certain amount of CVC - more than what most RSPs historically purchased -  with each newly-sold internet service.

The minimum cost of these newer services is $45 a month wholesale and $60-plus retail.

Millions of existing NBN users upgraded to these newer services since they offered better performance and lowered the chance of slow internet speeds during the evening peak.

However, as iTnews has repeatedly pointed out over the past year, many users couldn’t afford to upgrade or - in some cases - had lines that didn’t support higher-speed services.

These mostly 12Mbps customers are victims of a ‘class war’ - forced to choose between paying more to upgrade their internet or paying the same for a degraded service.

For those that stayed put and resisted paying more, NBN Co has slowly eroded the performance of their services.

That effort was bolstered in May last year when former CEO Bill Morrow said NBN Co was “of the view that 12Mbps was never intended to be used as a broadband service” - and began repurposing it as a voice-only tier, capable only of heavily-throttled internet speeds.

The end of a promotional discount in October last year - which was not specifically for 12Mbps users but had benefited them - saw NBN Co issue a warning that congestion levels for some users would rise - and they did.

But that increase in congestion is likely to pale in comparison to what NBN Co now has planned.

Congestion welcomed back

iTnews can today reveal that the company will dump the dimension-based discount for CVC purchases.

This affects anyone whose internet services are provided under what NBN Co calls its old or legacy pricing model (where a service consists of two separately priced components: a set service charge and then a variable CVC charge, instead of the two being bundled together as they are under the new price model).

In plain English, that is likely to be almost all users currently signed up to a 12Mbps plan.

The Australian Competition and Consumer Commission (ACCC) said that almost 1.2 million users are on a 12Mbps plan as of February this year - a quarter of all users connected to the NBN.

The loss of the dimension-based discount will be profound.

NBN Co first started trialling dimension-based discounts for CVC in mid-2016, initially calculating the discount based on industry-wide consumption of CVC capacity.

That saw the price fall from $17.50 per Mbps per month to $15.75 and then $15.25 (with a theoretical cheapest price set at $11.50).

In June 2017, NBN Co started tailoring the discount based on how much CVC each RSP bought, effectively rewarding those that bought more than others with even steeper discounts.

NBN Co said at the time that could bring CVC prices down to as little as $8 per Mbps per month.

These discounts will now be axed, and the old CVC pricing - which led to massive slowdowns and poor performance - resurrected.

“After [the dimension-based discount] expiry, TC4 CVC will revert to price list ($17.50),” an NBN Co spokesperson confirmed to iTnews.

“NBN Co will continue to provide discounted list price options primarily through our wholesale bundle discounts which have a minimum level of included bandwidth at a heavily discounted price. Alternatively, RSPs can continue to use our standard legacy pricing.

“NBN Co will continue to work and consult with RSPs on the next steps for pricing, to make sure it best supports, RSP, end-user and NBN aspirations.”

Make sure it's dead...

This is likely to be the final nail for 12Mbps as a broadband tier on the NBN.

But - just to be sure - NBN Co is also killing off the option to buy a 12Mbps service with 2Mbps of bundled CVC under the new price model.

When NBN Co launched its new price model, it set a $45 a month minimum cost for a 12Mbps, 25Mbps or 50Mbps service.

Buying a 12Mbps service at that price was never going to attract many users: “very few” moved from the old price model to the new price model, effectively relegating the old price model to an increasingly isolated pool of low-cost services and users.

From May, the options for 12Mbps users are:

  • Stay with their existing service and watch the performance die as CVC costs skyrocket.
  • Upgrade to a 50Mbps service on the new price model (since few RSPs sell a 25Mbps service). This assumes their line is capable of supporting those speeds.
  • Downgrade to what NBN Co is calling the “entry level bundle” - a $22.50 a month wholesale service with barely dial-up internet speeds.
  • Abandon NBN altogether.

NBN Co claims there is a fifth option, should RSPs wish to offer it - buy a high-speed service and “shape” the speeds to mimic a 12/1Mbps tier profile. However, there would be no cost advantage in doing so.

NBN Co’s spokesperson told iTnews that the company had given RSPs six months to work out what to do with any customers that signed up to an expensive 12Mbps plan with bundled CVC.

“A six month transition period was provided to allow for ‘right planning’ of services currently on a bundled 12/1 [plan],” NBN Co’s spokesperson said.

“From 2 April onwards, all 12/1 services on a Bundled CVC will be considered an entry level bundle (ELB) and subject to the conditions of the ELB discount” - that is, a tiny amount of bandwidth (150Kbps) and high punitive charges should a user consume too much.

iTnews has not been able to establish whether anyone actually bothered to buy a 12Mbps service for $45 a month wholesale; NBN Co declined to break out the number of users signed up to the different 12Mbps options.

“All commercial agreements with our retail service providers of the NBN remain commercially sensitive and in confidence,” a spokesperson said.

The number could feasibly be close to - if not - zero, and therefore killing off the product is more psychological than anything, narrowing the options for RSPs to continue to service a 12Mbps customer base.

NBN Co’s spokesperson said that RSPs bent on having a 12Mbps option under the new price model could pay for a 25Mbps or 50Mbps service and "shape" the speeds.

"[As of April 2], RSPs will continue to have the bundled discounts on 25/5 and 50/20 speeds at [$45 a month wholesale],” the spokesperson said.

“It is up to RSPs how they use these speeds, and they can continue to offer them as a 12/1 offer to customers if they choose (RSPs can shape end-user speeds).  

“However, we are making it easier for RSPs to upsell higher speeds to customers, which can provide a better experience at no additional cost.”

NBN Co said that, despite the squeeze on 12Mbps users, it “remains mindful to ensuring RSPs have flexibility in how they offer services to different customer groups”.

“We will be working with RSPs on how to ensure the pricing discount options that NBN Co provides can be used for different customer groups,” the spokesperson said.

How this will play out

What RSPs will do when dimension-based discounts end is currently unknown, and many either declined or did not respond to requests for comment, given the tough decisions that must now be made.

Some may follow the lead of Vocus, which recently made the call to stop bothering to pursue new NBN sign-ups, citing pricing and lack of margin as key concerns, and instead focus on forthcoming wireless services.

It could also drive many 12Mbps users to ditch NBN altogether and take up mobile broadband, where the likes of Optus and its resellers (such as OVO) are increasingly offering high quota and competitively-priced plans.

NBN Co may be hoping at least some users will stay on and shift up to higher tiered services, since its economic viability is partially predicated on getting users to buy more expensive plans.

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